Whitestone REIT

And welcome to the Whitestone REIT second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Morley. Thank you. You may begin, sir.

Good morning, and thank you for joining Whitestone REIT's second quarter 2023 earnings conference call. On today's call are Dave Holman, Chief Executive Officer, Christine Mastandrea, Chief Operating Officer, and Scott Hogan, Chief Financial Officer. Please note that some statements made during this call are not historical and may be deemed forward-looking statements. Actual results may differ materially from those forward-looking statements due to a number of risks, uncertainties, and other factors. Please refer to the company's earnings news release and filings with the SEC, including Whitestone's most recent Form 10-Q and 10-K, for a detailed discussion of these factors. Acknowledging the fact that this call may be webcast for a period of time, It is also important to note that this call includes time-sensitive information that may be accurate only as of today's date, August 2nd, 2023. The company undertakes no obligation to update this information. Whitestone's third quarter earnings news release and supplemental operating and financial data package have been filed with the SEC and are available on our website in the investor relations section. We published second quarter 2023 slides on our website yesterday afternoon. which will highlight topics to be discussed today. I will now turn the call over to Dave Holman, our Chief Executive Officer.

Thank you, David. Good morning, and thank you for joining Whitestone's second quarter 2023 earnings conference call. Operations delivered another very strong quarter in the second quarter of 2023. Legal expenses related to our termination for cause of our former CEO and our associated joint venture investment detracted from what would otherwise be a strong headline number, but we expect these to be short-term impacts to earnings this year and not ongoing. We will discuss litigation and our guidance in greater detail, but let me start with the second quarter results. Revenue grew over 4.2% from the second quarter of 2022. Funds from operations per share was 21 cents, down from 25 cents a year ago. This decrease was primarily the result of higher interest and legal expenses offset partially by increased property net operating income. Same store net operating income improved by 0.4% for the quarter and is up 1.7% for the six months. We expect the impact of our occupancy gains and strong leasing spreads to be more fully reflected in the second half of the year and are projecting same store net operating income growth in excess of 5% for the balance of the year. which should get us to our full-year same-store NOI growth guidance. Total occupancy is 93.3%, up 180 basis points from the second quarter of 2022, and up sequentially 60 basis points from the first quarter of 2023. As of the end of the second quarter, our net effective annual base rent per square foot was $22.78, an increase of 4.9% from a year ago and up 2.5% from the first quarter. We continue to be very optimistic as we are seeing fundamental trends driving organic growth in 2023 that we anticipate will last well beyond this year. I'll outline a couple of those trends. First and foremost, our portfolio of properties are well located in the fastest growing cities in the country. The Dallas, Houston, Phoenix, and Austin MSAs ranked first through fourth in terms of the greatest number of new residents between 2019 and 2022. This influx drives business growth, both small and large businesses. Houston just topped the Paycheck Small Business Jobs Index for the eighth month in a row, with Phoenix coming in third in the rankings. This kind of robust business growth generally allows us to have multiple options to fill spaces, enabling us to optimally fill centers to maximize foot traffic and take advantage of synergies. We've been positioned almost exclusively within these high-growth cities for over a decade, and we continue to see strong benefits. The second key trend we're seeing right now is lack of supply. Acquiring new centers in our markets in the right neighborhoods is extremely challenging. This is both because of limited existing product and because higher interest rates and a focus on other sectors are shutting off the valve for new retail center development. We've now delivered five consecutive quarters of combined gap leasing spreads in excess of 17%, and we're seeing no evidence of a pickup in the construction pipeline that would cause a dampening of the current environment. Despite this supply trend, we recently have found two great additions to our portfolio with our Lake Woodlands acquisitions at the end of last year and our second quarter acquisition of Acadia. We continue to upgrade the quality of our portfolio, trading out a number of properties with lower ABR where we felt additional value gains were limited in order to make these acquisitions. Our leasing team has already produced fantastic results for the first two quarters we've owned the Lake Woodlands property and we're similarly excited about our Arcadia acquisition. We may have some additional activity on the acquisition and disposition front during the second half of 2023 and we anticipate we'll roughly balance the two in terms of financing the acquisitions. Now let me address the legal expenses included in our second quarter results. In late 2021, Pillarstone Capital REIT, the general partner of our joint venture in which we have an ownership interest of approximately 81% in real estate assets, filed a poison pill solely to frustrate our contractual rights to redeem and monetize our investment. Our former CEO beneficially owns 64.3% of Pillarstone Capital REIT. Whitestone initiated a Delaware lawsuit in mid-2022 asking the court to declare the poison pill unenforceable and to permit Whitestone to redeem and monetize its investment. Whitestone seeks an award of monetary damages of approximately $60 million, including the amount that the general partner's misconduct precluded Whitestone from receiving in or around December of 2021 and pre- and post-judgment interest at a statutory rate. The Delaware trial on removing the poison pill was held just over two weeks ago and went very well. We remain confident the court will support our position. While timing is difficult to predict in these types of legal matters, we anticipate a decision before the end of the year. The original intent of Pillarstone was a vehicle to monetize these non-core assets, and we're going to get back to that very shortly. Necessarily, our legal expenses have been significant, and unfortunately, greater than estimated in our initial guidance. our legal expenses are included in our gna expense additionally pillarstone capital reit the general partner has communicated that they have or will charge their legal expenses to the partnership and our pro rata share is reflected in equity and earnings of real estate partnership both charges significantly impacted this quarter's results and full year guidance Scott will provide greater detail on those numbers in his remarks. As many of you know, we dramatically improved our governance profile over the last year, and we're working hard to advance our environmental objectives with several new initiatives. We'll be rolling out green leases across the board during the third quarter. In addition, we are evaluating the installation of charging stations at a number of our centers. which both attracts customers and helps facilitate the transition to electric vehicles. Finally, we completed our second Gretzky filing in June, which we believe is an important tool for benchmarking our progress versus ESG practices across the wider real estate industry. We believe it's vital to do our part as the world grapples with climate change. My wrap-up comment is very short. The business is firing on all cylinders, and we believe that will become ever more apparent as we get past the litigation noise that is occurring now and will likely last until about year-end. And with that, I'll turn the call over to Christine.